The New Zealand government has decided to give consumers with unclaimed gift cards issued by a failed business a priority in the winding up of the business; the consumers are otherwise just unsecured creditors. But there are to be limits.
Insolvency practitioners will be required to honour at least 50 percent of the value of any gift cards if the business continues to trade after entering liquidation or receivership.
According to the government, insolvency practitioners say that this 50% obligation is unlikely to impact on their decisions about whether to continue trading or close a business immediately. However, it could impact on any decision to do so if there were to be a requirement to honour the amount in full.
Other options were considered.
Some insolvency practitioners have a practice of honouring gift cards as long as the consumer also spends the equivalent amount (e.g a $30 gift card will be honoured if the consumer also spends at least $30). That approach was adopted in relation to Banks Shoes and Pumpkin Patch, but not Dick Smith Electronics.
But the government did not like this approach because it would be less accessible to low income consumers who could not afford to match the value of the card or voucher.
The government also rejected a full priority as recommended by its working group – see NZ insolvency reform – gift cards, director identity numbers, voidable transactions, Ponzi schemes, and more – as it would involve significant administration costs given that businesses do not usually keep detailed records of gift card sales.
It seems the thinking is that a 50% priority would be that much easier than 100%.
Neither Australia nor England have given gift card holders – typically $50 or under – any priority in an insolvency.